The British Foreign Office has dismissed as "conjecture" reports that the UK and Spain were close to signing a deal agreeing joint sovereignty of Gibraltar - a move that would be bound to upset the Rock's residents.

The Daily Telegraph quoted an unnamed UK Foreign Office source as saying the two countries were set to seal the deal by the end of the summer, following 18 years of negotiations.

We are certainly not going to speculate about outcomes so far in advance

Foreign Office

But the Foreign Office told BBC News Online that "it was not helpful to speculate on outcomes".

The Telegraph said the deal could declare an unlimited period of co-sovereignty, with no mention of British withdrawal, nor of future full Spanish control.

However, a Foreign Office spokesman insisted that talks were still on going. "We expect the next round of talks among ministers to take place by February," he said.

The two governments were committed to producing an agreement on Gibraltar by the summer.

Referendum

"We have always said that sovereignty is one of the aspects and it is not helpful to speculate on outcomes."

The government has always stood by the 1969 Gibraltar Constitution and Commitment which said that Britain would never agree change of sovereignty "against the freely and democratically expressed wishes of the Gibraltarians", said the spokesman.

A referendum would have to be held no matter what was agreed.

"There is some way to go. Preparations are continuing and we are certainly not going to speculate about outcomes so far in advance," the spokesman added.

In the past, Spain has insisted that eventual full Spanish sovereignty was non-negotiable, and that it would share control with Britain for a limited time only.

Peter Caruana wants Gibraltar to remain a British colony

Joint sovereignty of the outcrop would upset the 30,000 residents - the overwhelming majority of whom want to remain a British colony.

Peter Caruana, Gibraltar's chief minister, recently told British MPs: "I have no wish to barter our sovereignty. We do not wish to give Spain a share of that sovereignty."

He has also expressed fears that the two nations would simply come to a decision over resident's heads - a move which he said would be "democratically obscene".

A British diplomat told the Telegraph: "We recognise that it is going to be very difficult to convince the Gibraltarians that the option we offer them will be the best.

No change

"For this we are going to need a lot of help from the Spanish government."

Gibraltar was seized from Spain in 1704, and has been a source of conflict between the two countries since it was handed over to the British under the Treaty of Utrecht in 1713.

The UK and Spain agreed in November that both countries would reach a deal over Gibraltar by summer 2002.

Mr Blair said then his government had not budged on the key issue of sovereignty.

He said: "We stick absolutely by the 1969 resolution which makes it clear that there shouldn't be a change in the constitutional status of Gibraltar without the consent of the people there."